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Wednesday, September 19, 2007

Patently offensive

I've written here previously about the federal government's recent practice of issuing patents for tax-saving tactics. It's a bad idea, on a couple of levels.

First, it encourages tax avoidance. Nearly a century of experience with our current tax system proves beyond a doubt that there is already adequate incentive for people to minimize their taxes, and for tax professionals to help them do so. There's no need to start awarding monopoly franchises to encourage that kind of behavior -- it's already rampant. In particular, the U.S. corporate income tax has already become a sick joke. We don't need tax patents to make matters worse.

Another problem is the one facing taxpayers who just want to do what the law requires, which is report their finances accurately on their tax returns. Let's say that the tax law provides that if you do A, B, and C, then tax consequence X results. Assume that a particular taxpayer has indeed done A, B, and C during the year. If someone holds a valid patent on A-B-C as a tax-savings "process," the taxpayer won't be able to report tax consequence X on his or her tax return unless he or she negotiates and pays a royalty to the patent holder. That's bad policy -- especially since the taxpayer would be liable for patent infringement even if he or she didn't even know the patent existed.

Although quite a few tax patents have already been issued, the day on which such practices end may be in sight. There's now legislation pending in both houses of Congress that would put a stop to the patenting of tax-saving techniques.

It's interesting to note that one of the people partly responsible for trying to patent one tax-saving device is none other than the chief economic advisor to the White House, Edward Lazear. The official story is that he won't be profiting from the patent, but his signature as "co-inventor" was required in order for the patent application to be filed. And filed it was, and so somebody will make some dough off the patent if it is issued. Just another Republican patriot in our midst.

Comments (6)


Isn't this verboten for us to discuss here?

I re-read your post, that is interesting. How the heck do they enforce it? The big corp would be careful, but they can chase every CPA.

THis reminds me of Rambus (ticker RMBS), they basically made computer memory for 2 years, but for the past 5 years have lived off patents on a couple of small features in standard computer memory. By the way, they got these patents by being on some of the standards committees and never used them besides collecting dues.

Isn't this verboten for us to discuss here?

Why, no. I don't blog about my workplace, but the tax system generally is always fair game.


I was restraining myself because I was under the impression that you didn't blog about your work, not that you didn't discuss your workplace.

My bad.

A patent on a tax filing process? Thats just dumb...it doesnt even make sense.
Just one more reason to keep people from doing their own taxes. I wish they would just go to a flat tax, no deductions, nobody gets out of paying. The less complicated, the better.

Fortunately this silly aspect of patent looks like it will be changed soon. As part of the patent reforms already passed by the house (House Bill 1908), methods for tax shelters will no longer be allowed. I'm not sure on whether it will be retroactive or not.

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